Nearly 700 employees will vacate state office buildings in downtown Chattanooga by next April and relocate into leased offices at what was once the city's biggest manufacturer and its first shopping mall.

The State Building Commission on Friday approved a deal struck by an outside real estate services company to move 425 state employees to the Eastgate Town Center in Brainerd and another 245 employees to the former Combustion Engineering offices at 1301 Riverfront Parkway.

The relocation of state workers in Chattanooga is similar to moves also being made at state offices in Knoxville and Nashville to save up to $74 million over the next decade.

The state will pay $36.3 million over the next 15 years to lease a total of 129,674 square feet of office space in Chattanooga. Peter Heimbach, executive director for building commission relations, said those leases will save more than $30 million compared to what it would cost to repair and maintain the Chattanooga State Office Building on McCallie Avenue, formerly the headquarters of the Interstate Life and Accident Insurance Co., and the James Mapp building on M.L. King Boulevard.

"Those buildings have more square footage, but they are not as well laid out or as energy efficient and the cost of bringing those buildings up to today's standards was simply too expensive," he said.

The moves will mean hundreds of fewer employees and thousands of fewer visitors to state facilities will come to downtown Chattanooga. But the building commission panel did agree to try to lease another 15,000 square feet elsewhere downtown to maintain a presence for some state offices in downtown Chattanooga.

Although the state received a half dozen bids for office space in Hamilton County from its initial request for proposals, state officials decided to rebid the leases for the smaller downtown space in Chattanooga.

State House Majority Leader Gerald McCormick, a Chattanooga Republican involved in real estate and economic development, previously raised concerns about the impact on downtown businesses and restaurants if the state employees move out of the central city.

"It does concern me that we're losing people from downtown," McCormick said. "But then again, the Eastgate area also needs some economic stimulus and this might provide that for them."

Paul Mallchok, general manager for 720,000-square-foot Eastgate Town Center, said Eastgate already houses state offices for Human Services, Children's Services and Labor and Workforce Development "and this is a wonderful way of supporting Eastgate as a state government facility.

"We are excited about helping the state meet its office needs at what we believe is a good product at an attractive price," he said.

McCormick said he is interested in knowing if the consulting firm hired by the state - Jones Lang LaSalle - actively worked on trying to keep the offices downtown "and if they did the work that justified what they got paid."

The consulting firm was paid $2.7 million in fees from the landlords of buildings the state will lease, but Jones Lang LaSalle will rebate more than $350,000 of those fees back to the state, Heimbach said.

"They did a fabulous job for us and helped us save money," Heimbach said.

Tennessee General Services Commissioner Bob Oglesby said the office moves "create better work spaces that are operationally cost effective so we can focus our resources on the state's priorities."

The state employees being moved in Chattanooga are employed in state's Department of Children's Services, the Department of Human Services, and the Tennessee Department of Environment and Conservation.

The University of Tennessee at Chattanooga has requested the state transfer the vacated state office buildings on McCallie Avenue and M.L. King Boulevard to the UT system to help it expand the campus footprint of UTC and possibly add more dorms to house students. Any transfer decision will be made by Gov. Bill Haslam and the Tennessee Higher Education Commission next year, Heimbach said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340 or Andy Sher at asher@timesfreepress.com or 615-255-0550